The problem with finding advancement opportunities for non-advisors is more acute in smaller firms. We noted that in firms with more than $1 billion in revenue, there are as many as 22 or more administrative and support employees. If we assume that every five to seven employees are overseen by a manager, we can easily see room for advancement within these units. But a firm with less than $500 million in assets under management usually has only two or three administrative employees. Finding a career track in such a firm would be problematic—since all career tracks are limited by the firm’s size. You can’t really grow a big tree in a small pot.
The stages of growth and advancement in an advisory firm should perhaps rank in this order:
1. Operations And Admin Specialist
This would be an entry level job for new hires into operations or administration.
People in these positions would have specific responsibilities such as overseeing client service administration, administrative support or executive support. People at this level could be performance reporting analysts or new account specialists.
People in such entry level positions would support an advisory team or be a member of a client service team.
2. Senior Specialists
This would be somebody at a higher level of the same position—and would include, for example, senior client service administrators. The “senior” label indicates a higher level of experience and higher expectations for an employee’s productivity. These employees may also be empowered to make more decisions independently and may have a budget that they manage. Also very important is that they would have the responsibility for training other staff members.
3. Team Leader Or Director
The person in this position leads a team of operations and administrative specialists. This is a management position and prioritizes performance management, training, coordination and coaching. At this level, employees can also be “player-coaches,” who combine supervisory responsibilities with service or administrative activities. It may include positions such as office managers, trading managers, directors of client service administration, human resource managers and others. For these positions to be meaningful, the employee needs to manage at least three or more employees.
4. Department Leader
These employees have the highest level of responsibility, overseeing multiple teams and a significant portion of the operations or administrative functions of the firm. Such positions will include chief administrative officers, chief technology officers and, most important, chief operations officers. Department leaders will typically supervise team leaders (directors) and will have significant budgets under their control. In a large firm, the technology department, for example, can have a budget of more than $500,000. The COO of a firm may be responsible for an overall budget of $2 million or more. As a general rule of thumb, department leaders should be included in ownership discussions.
Note that the transition from step one to step two shows merely a progression in an employee’s responsibilities while the two steps up after that require the firm itself to grow so it can offer an increase in team size and budgets.
Partnership Criteria for Non-Advisors
This brings us to partnership questions, namely: Should operations and administrative leaders become owners or partners? To me the answer is obvious: Of course they should. Even now, COOs are usually among the partners in advisory firms. Other people such as CCOs, CFOs and directors of administration could also be considered.
The key for adding non-revenue partners is being judicious with the pace of such additions. If we return to the $1 million rule (for every $1 million in new revenue we should consider adding a partner) every time the firm grows enough we should ask the question, “Who has contributed the most?” If there is someone who has contributed substantially to the growth of the firm and works very directly with the clients who created this growth, it is very difficult to pass them over and elect a non-revenue partner. That said, in practical situations the highest contributor is often not an advisor but may instead be somebody in the back office.
Another way of looking at the addition of partners is to think of partners as leaders. Partners should definitely lead by example. We can then scan the organizational chart and ask ourselves, “What is an area of the firm where we have seven or more employees that are not led by a partner?” Alternatively, we can look at the firm budgets and ask, “Who controls a significant budget and has a significant impact on the profitability of the firm?”
With that criteria in mind, the key word becomes “contribution.” Contribution is what we expect from all partners, advisory and non-advisory alike. For advisory partners the criteria should be in the form of “revenue” and “client relationships.” For non-advisory staff, the criteria should be the number of people managed and developed, the budgets controlled and executed, the systems implemented that benefit the firm, the intellectual capital created and utilized … and so on.
While I make the statement about careers in operations with a great deal of confidence, I also want to express a couple of important conditions. The first is that any career, in any part of a firm, is only unleashed when that firm grows. The second is that while I very much believe that every good soccer team needs a good goalie, we also cannot have a team of goalies. In other words, the number of non-advisor leaders in the firm cannot and should not exceed the number of client-facing, revenue-generating advisors.
The Non-Advisor CEO
I used to take it for granted that the leaders of advisory firms would mostly be advisors. But then we started the “G2 Institute,” Ensemble’s management and leadership training program for future leaders. The first two classes consisted of over 100 individuals from across the industry, representing some of the largest firms but also many smaller, ambitious firms as well. I was somewhat surprised to see that approximately a third of the group came from the non-advisory departments. The talent, ambition and ideas of that group were undeniable. They were just as full of ideas for the future of their firms as their advisor colleagues and perhaps even had more. Many of them are MBAs, many are experienced in management, most are very strategic in their thinking while grounded in the practical reality of implementing strategies. Looking at that group, I am convinced that many of them will lead their firms into the future.
I am now also convinced that some of the best leaders in the advisory industry are not advisors—and that’s great!
Philip Palaveev is the CEO of the Ensemble Practice LLC. Philip is an industry consultant, author of the book The Ensemble Practice and the lead faculty member for The Ensemble Institute.